The U.S. Census Bureau just announced its annual income and poverty estimates for the nation. Maryland has the distinction of having the highest median household income ($65,144) and the lowest poverty rate (7.8%) in the U.S. Howard County had the highest median household income in Maryland ($94,260) and ranked third among all counties nationally (behind only Fairfax and Loudoun counties in Virginia).

Combine these high income – low poverty figures with the high tax rates imposed here, and I’m at a loss to see how the State and its subdivisions can be complaining about “structural deficits” and a lack of revenue. I recall many high-tax apologists spin our tax burden by noting that our taxes, as a percentage of household income, are at about the national average. That argument has never made any sense to me. If government is supposed to address its citizens’ needs, should not those needs, and the level of government services, decrease as the citizens’ wealth increase? Given our high income levels, our tax rates should be below average. Am I missing something?

MD Senate President Mike Miller (D Calvert & Prince George’s Counties) with SB949 is proposing a 50% increase in the MD State gas tax from 23.5 to 35.5 cents and it could raise to 39.5 cents per gallon.

Why the range? Well, Sen. Miller realizes that raising taxes is unpopular. So, instead of requiring our elected representatives to go on the record for an unpopular position in the future, this tax will be index to the whole sale price of fuel. Fuel prices rise and so does the tax. No vote required.

Being cynical, this will provide also provide political cover for the future. If fuel prices rise above the proposed 39.5 cent cap, the tax can be increased by just raising the cap, not by changing the tax. This will allow political denialability, “We didn’t raise the tax, we just raised the limit.” See, magically taxes can go up, but “we” didn’t vote for a tax increase so don’t blame us.

If our elected representatives want to spend 30+ billion dollars a year of our money, they can at least go on the record each and every time they want more. If forced to take an unpopular position and raise taxes maybe, just maybe, they might find a dollar or two that may not be an essential government function. I know this is Maryland, but…

Our elected representative should be willing to take a stand, not looking for ways to make their position easier. If you think raising the gas tax is a good idea, vote for it. If you want to raise it in the future, vote for it again.

In some areas of the State 2005 property tax assessments increased 25% while in 2004 the average increase in property values increased 18.5%. A homeowner opens up the mail and learns that in only one year her property assessment has increased 40%. Assessments rose briskly in the inner suburbs, too — 20.6 percent and 19.5 percent … to name two. But in those closer-in communities, the rate of growth has slowed a bit from last year… average home values actually ticked down in the fourth quarter of 2005, although they are still about 20 percent higher than in the previous year. This isn’t Howard County. I am writing about our neighbor to the south. The Commonwealth of Virginia. (you can read more here). In Howard County the situation is actually worse in terms of the rate of increase in assessed values. This morning I wrote the following on Hayduke’s blog.

Homeowners don’t realize those gains until they sell the home. Right. These values are only on paper for those who are not selling. However, the State and the County is going to take property taxes based upon those valuations TODAY. Insurance premiums are going to rise based on those valuations TODAY. Out of pocket expenses are due TODAY. If these values stay as high as they are then one will realize them much later.

I read this in the Washington Times on a plane headed to Boston for the day.

“Many people have had the experience of their homes increasing in value on paper, but they cannot access that to help pay for the increased taxes,”

Talk about a de j’vue moment. Who was the bright fella who made the statement above? Democratic Governor of Virginia Timothy Kaine during his successful campaign to succeed Governor Mark Warner. Governor Kaine has also stated:

It (property taxes) is the fastest rising tax facing Virginians today. Property taxes are increasing at dramatic rates in many parts of our state, fast outstripping increases in individuals’ salaries and the cost of providing services.

Recognizing that rising property values are a windfall for local government and an unjust burden on homeowners Gov. Kaine is actually following up on one of his campaign promises. In fact it is a promise he made in April 2005 when he was behind in the polls against Kilgore and it helped propel him to the Governor’s mansion. From the Washington Times:

Gov. Timothy M. Kaine will push this winter for a measure that was among his first campaign pledges: allowing local governments to discount real estate taxes on homes by up to one-fifth [20%].

It turns out the Governor has some competition. State Senators and Assemblymen are proposing property tax relief measures on their own. In fact there are five other competing proposals. Some of the proposals would limit the amount of revenue increases a County can experience year over year on the current assessable base of property. Why the rush to cut property taxes? People are rightly concerned about the huge increases in assessed home values and the large new taxes they will be paying. Some others are concerned it is a threat to personal property rights in that government is making our property unaffordable. I don’t know about that but I do understand where they are coming from. Anyway, we should be concerned too. Now, I don’t think Howard County has to change the constitution in order to bail home owners out of this problem and still ensure that the County has enough money to operate at its current level. They can utilize the Constant Yield Tax Rate provision of State law and Howard County can lower its property tax rate to ensure that it receives the same amount of property tax revenue as it did last year. I think most everyone knows of the famous response to Virginia O’Hanlon’s question to the New York Sun newspaper. “Yes, VIRGINIA, There is a Santa Claus.” Well, it seems that in Virginia there is a Santa Claus and it will be some form of property tax relief for all home owners. As to Howard County I don’t know. My feeling is that tax relief (beyond the $100 we got from Robey) in Howard County is as likely as me capturing Santa Claus breaking into my home on Christmas morning. Given the fuss over the Senior tax cut and whether we can afford it our not I highly doubt we will see any relief. They know we can afford tax relief. If they don’t know it they should know it. I am certain that Mr. Ball’s and Mr. Fox’ task force will show we can afford both a senior tax cut and a broad based tax cut. I can hear it now. Read the rest of this entry »

Because the reassessments of existing property for Fiscal 2007 are already complete, most of the real property assessable base has already been determined. The only unknown factor is the amount of new construction that will be added to the base between now and July 1, 2006. Based on a projection of that new growth, the reassessments of existing property, the phase in of reassessed property from previous years, and the new construction that has been added to the base during the past year, the County Budget Office is projecting a full value real property assessable base of $33.4. billion. This is a 17.6 percent increase over last year’s base.

What is that $5 billion? Here are projected county revenues through 2010. Pay particular attention to property tax revenues. Income revenue is more sensative to the health of the economy. However, the assessment is the assessment and will phase in regardless of the health of the economy.

(click image to enlarge and open in a new window)

Projected property tax revenues of $391.5M by 2010. That is a $67 million increase in revenue and the County has always taken in more property tax revenue than it projects. Is there any question as to whether we can afford a $2m to $4m tax break for our senior citizens?

In response to a question asked of me on the HCAA list serve I wrote the following.

I referred to the Homestead Tax Credit as a tax deferral. I mislabled it and responded to additional questions specifically what options to seniors have today when one considers that property assessments have risen 72%, 100% and 150% depending on where you live in the County. These assessment increases are HUGE! The county is like a kid in a candy store. Aside from Statement 43 and 45 they are flush. I suspect that they are going to get a lot of elbow room on implementing the new accounting standards.

Anyway, you may find the information somewhat interesting or useful.

You are absolutely correct. I mispoke. I was referring to the PROPERTY TAX DEFERRAL. Too much reading on my part – pardon my error. Also, these are very good questions. I hope that the HCAA readership is interested enough to stay with us on this.

PROPERTY TAX DEFERRAL
This program allows property owners, age 65 or older, to elect to defer the increase in their property tax bill. Each local government must first adopt the program. The local government then has the authority under State law to impose income restrictions and interest rate amounts. The deferred taxes become a lien on the property and must be repaid when the property is transferred. Montgomery County makes this deferral program available to homeowners of all ages who meet certain residency and income requirements.

The Homestead Tax Credit is not a deferral As the SDAT website says

HOMESTEAD TAX CREDIT PROGRAMAnother tax relief program is the Homestead Tax Credit. First enacted in 1977, the program has since been amended so that homeowners may be eligible for a state tax credit if the assessment of their owner-occupied principal residence increased more than 10% over the prior year. State law requires that county and municipal governments set a Homestead Credit Percentage between 0% and 10% for purposes of local property taxation. Upon qualification as the principal residence of the homeowner, this credit is automatically processed and is applied to the property tax bill.

This is the same thing as Howard County’s 5% assessment cap. I went into this in great detail on my blog (here) this past March. There was a great deal of discussion in the event you would like to read the commentary. This is available to all home owners. By State law Howard County could raise the phase in to 10% but they keep it at 5%.

On that post I wrote:

“Maryland uses a triennial assessment process. In that process one third of the County is reassessed each year and the assessment adjustment is phased in over a three year period. So revenue is predictable. If a triennial reassessment increase on a property is more than 15 percent, it will take more than three years to fully phase in the increase. Since the current assessment cap is at 5 percent and 5 goes into 15 equals 3 it will take three years to phase in the increases. This year (2006) the residentaial portion of the assessable base in the third assessment area (Northeastern third of the county) grew by an average of 74% from reassessments. If these properties remain with the same owner, it will take fifteen years for those properties to be fully phased in. We know not all homeowners are going to stay for 15 years, but at a 74% reassessment how many have to leave to meaningfully change the numbers? Now consider and add the other assessment areas of the county. Additionally, during this same time period those same properties will be assessed up to three more times before THIS assessment increase is fully implemented.”

I should add that when a property is sold the new home owner begins to pay taxes on the full assessed value of the home and not the phased assessment. What this also means is that every year every property owner in Howard County receives an automatic tax increase. On top of this our property tax rates in Howard County exceed the State’s Contstant Yield Tax Rate. The CYTR is a State law that prohibits local government from setting the tax rate at a level that will generate revenues that exceed the previous years revenues.

Again from the SDAT

The Constant Yield concept is that, as assessments rise, the tax rate should drop to the point that the revenue derived from the property tax stays at a constant level from one year to the next, thus assuring a “constant yield” from this tax source. The Constant Yield Tax Rate is simply a property tax rate that, when applied to new assessments, will result in the taxing authority receiving the same revenue in the coming taxable year that was produced in the prior taxable year.

That does not happen in Howard County. Howard County doesn’t have to follow the provisions of the CYTR.

Again from the SDAT:

Although setting of the local property tax rates is the task of elected officials, Maryland’s Constant Yield Tax Rate Provision gives property owners a voice in the process before the final tax rates are determined. This is done by requiring each taxing jurisdiction to give advance notice and hold public meetings prior to the rate setting if they are considering a tax rate higher than the Constant Yield Tax Rate. Most meetings are held during April, May and early June. Tax rates must be set by July 1, which is the beginning of the tax year.

Can anyone on this list tell me if they ever attended such a public meeting?

What this means is that local government has an every increasing revenue stream and they do not adhere to the CYTR. That is why I stated earlier “Howard County takes in more revenue than projected every year. Given the tri-annual property assessment process and the phase in provisions of property tax increases Howard County is experiencing increased revenues every year.”

I digress

There is also the Homeowners Property Tax Credit for those whose property is assessed at less than $300,000 and whose income is less than $55,000. It can limit property taxes to anywhere from $0.00 to less than $4,000 depending on the mix of income and assessed property value. Taxes must be paid at the full assessed value on anything above $300,000 in assessments. This is also available to renters though I didn’t look into it. There is other criteria for this Tax Credit, but it is a good place to start if they meet at a minimum the income criteria.

If I were a Senior, had the equity in my home, and did not mind having a lien placed on my home I would pursue the Tax Deferral. Another reader suggested a reverse mortgage as an alternative – but the intent (as I understand it) is that homeowner would give up ownership of the property and would incurr a debt against the home – in fact they may end up borrowing more than the property is worth. In a tax deferral that would be unlikely to happen. News reports have been such that seniors have not taken advantage of this program as expected and the most common explanation is that they do not want to be nor have their heirs to be encumbered by a tax lien.

However, given that property assessments are so large (72% or more in some areas, 100% in others as you noted, and 150% in my case) I think a freeze in assessed value and a property tax reduction are the most prudent and effective ways to help our seniors who meet the eligibility requirements (age and income) as proposed in the latest Senior Property Tax program.

For those who don’t like this tax cut because it is a targeted tax cut we could pursue another course of action that would help all tax payers. We could lower our tax assessment phase in from 5% to 4% as Charlie Feaga proposed and the Council passed in 2006 but it was vetoed by Jim Robey, and/or insist that the County adhere to the CYTR provision of State law. I think we could revisit Councilman Greg Fox’ proposal of making assessments portable for senior citizens who meet the same age and income requirements.

Let me close with this comment I made at Hayduke’s place:

Let me ask everyone a question just to see if we are all at least starting from the same point.

Are we all aware that property assessments have gone up from 72% to 150& depending upon where you live in the county? Are you also aware that these will be phased in over a number of years (take 72% and divide by 5% = the number of years it will be phased in) and while they are being phased in the property will be reassessed in three year increments ensuring increased assessment values?

We will not get any relief here – no one. However, most of us are earning income and earn more every year. Seniors don’t have that kind of earning power. They are stuck.

Despite projections of a looming fiscal crisis, a bipartisan committee of legislators recommended one of the largest state government spending increases of the past decade Tuesday, saying the money is needed to pay for a landmark education funding program.

The Spending Affordability Committee’s mission is to suggest limits on increases to the state budget to prevent it from outpacing growth in the economy. But lawmakers conceded Tuesday that the 7.9 percent increase they authorized for the fiscal year that begins in July is unsustainable over the long run, given that personal income growth in the state is expected to be about 5 percent or less in the foreseeable future.

Okay, we have a “looming” spending crisis. So, let’s increase spending this year by more than we have in the last decade. Apologies to Guinness, but Brilliant.

Leaving the name aside, maybe the problem is with the Spending Affordability Committee’s mission – to suggest limits on increases to the state budget. Any thoughts on freezing or even cutting spending? 29 Billion dollars and climbing – all spent in the most efficient way possible?

The recommendation comes at a time when legislative leaders are calling for an overhaul of the state’s tax structure to make the system more reflective of the modern Maryland economy. Over the next several years, lawmakers will likely consider increases in some taxes and cuts to others — with an overall rise in how much citizens and businesses pay for government.

overall rise in how much citizens and businesses pay for government – That is tax increases. So, how do we sell this this?Read the rest of this entry »

Funny intro, predictable politics: State Senator Sandy Schrader has the style, but there’s little substance, besides the usual Democrats-just-want-to-raise-your-taxes, in her anti-Robey claims. Of course in politics, like with most things, style is what matters most.

We can run 1,000 scenarios on this if we wanted to. I am going to run this one just to see how it works out.

My neighbors teach in the HoCo school system.

Their house is currently assessed at $245,000 (property tax = $2,485 [Robey plan]) and will phase in to $350,000 in a few years (property tax $3,549). They could easily sell the house for $400,000 (that is conservative – worse houses are going for more than $450,00 in this neighborhood).

Their last kid just graduated from college and is moving to Michigan.

They aren't downsizing, but in case they wanted to downsize here is what it would mean to them.

$1,065 per year. Not much of an incentive, right? If the median income in Howard County is $87,000 then that represents a 2% raise (1.8% in reality – I am rounding up for this exercise). Who doesn't want a 2% raise?

Well, assuming they purchase a $350,000 condo in Town Center. They make $200,000 on the sale of their home and put it all down on the condo. Now they finanace the balance of $150,000 for 15 years and now have a $1,250 mortgage payment. Property taxes under current law balloon the payment to $1,550 per month. One could run this at a 30 year mortgage and the payment would be $865 plus property tax it would be $1,265.

You give them the portability, allow them to take $105,000 off the assessed value of the condo and phase it in like they would have in their old home. Their total payment is $1,457 per month. At 30 years the total payment would be $1,165 per month.

See – no tricks up my sleaves. Either way that is a savings of $100 per month or $1,200 per year.

Someone might say $100 per month is no big deal. Well $100 per month is a big deal to some people – the same people we want to extend affordable housing to.

Invest that $100 per month every month in a modest 4% CD for 5 years they would earn interest of over $700. More than likely someone (a family of 5 who needs that extra bedroom, or the older couple who wants to sell to their kid and downsize) who finds this proposal to be a big deal probably has something better to do with the extra money.

What did the County make on the transaction? 1.5% of the sale price of $400,000 on the neighbors home and 1.5% on the $350,000 price of the Condo or $11,750. That is a ratio of 10:1. If the ratio is even as low as 3:1 the County makes out by spurring on at least 1 real estate transaction per year. Charlie is that an administrative burden?

What else did the County make on that transaction? For starters about $1,500 in income taxes, and other associated fees.

I think they can afford this proposal especially if my neighbors decide to stay in Howard County instead of moving to Michigan.

That is just one example. I am sure someone could come up with the opposite numbers or even better numbers.

Hayduke's most recent comments on the subject here (no commentary from me).